Australia's prime minister said Tuesday he was open to shifting the Australian embassy from Tel Aviv to Jerusalem in line with President Donald Trump's decision to recognise the contested holy city as Israel's capital.

Prime Minister Scott Morrison called a press conference to say he was "open-minded" to proposals to formally recognise Jerusalem as the capital of Israel and move his nation's embassy - a sharp break with the policy of successive Australian governments for decades.

"We're committed to a two-state solution, but frankly it hasn't been going that well, not a lot of progress has been made, and you don't keep doing the same thing and expect different results," said Morrison.

The status of Jerusalem is one of the thorniest obstacles to a peace deal between Israel and the Palestinians.

Israel regards all of the city - including the eastern sector it annexed after the 1967 Middle East war - as its capital while the Palestinians, with broad international backing, want East Jerusalem as the capital of a future state they hope to establish in the occupied West Bank and the Gaza Strip.

'Deeply disturbing'

In a statement, Palestine's embassy in Australia called Morrison's announcement "deeply disturbing".

It said short-term political gain "would surely be outweighed by the detriment both to Australia's international standing and in its relations with Arab and Muslim-majority countries".

Ambassadors from 13 Arab countries met in the Australian capital, Canberra, on Tuesday.

"We have agreed that we will send a letter to the foreign minister expressing our worries and our concern about such a statement," Mohamed Khairat, Egypt's ambassador to Australia, told the Reuters news agency by telephone.

"Any decision like that might damage the peace process ... this will have very negative implications on the relations between Australia and not only Arab countries but many other [Islamic countries] as well," Khairat said.

'Very thankful'

Israeli Prime Minister Benjamin Netanyahu, meanwhile, said he had recently spoken to Morrison and welcomed the Australian policy shift.

Morrison "informed me that he is considering officially recognising Jerusalem as the capital of Israel & moving the Australian embassy to Jerusalem. I'm very thankful to him for this", Netanyahu tweeted.

Morrison also announced Australia would vote against a United Nations resolution this week to recognise the Palestinian Authority as the chair of the Group of 77 developing countries.